One of the downsides of getting older is that for many if not most of us, some parts get bigger while others shrink. Which is often not a good thing.

We’re talking, of course, about your Thrift Savings Account. Over time it (hopefully) gets bigger. And while that’s really good it can also present some minor problems when you must, by law, start reducing it in the form of a Required Minimum Distribution. The RMD is the amount of money that must be withdrawn (taken) from most tax-deferred retirement plans annually once the account holder reaches age 70.5. That RMD is taxable, the price you pay (to the government) for being able to put it into your TSP (or similar vehicle) on a pre-tax basis.

Your RMD (the amount you will be required to take from your TSP and pay taxes on) is based on the previous year’s account balance as of December AND the participant’s life expectancy as determined by the government. You are allowed to die sooner, or live longer than Uncle Sam says is likely, but you can’t use the argument that you have good genes, several 100-year-old parents or grandparents or your healthy lifestyle to get a break. So why is the RMD important to many of you right now? In a word, you’re not getting any younger. And most federal/postal workers are currently under the FERS retirement system. With its less generous federal civil service benefit, FERS was set up to provide anywhere from one-third to one-half of all the spending money you will have in retirement. That’s a big chunk. So people need to max out (investing at least enough to get the full 5 percent match from their agency), and be aware of what changes occur when they hit 70.5, the beginning of the RMD.

Slightly more than half of Federal News Radio’s audience are age 45 to 64. That’s mirrors the age range of the total federal workforce that has been aging steadily for years.

Benefits expert John Grobe says the RMD life expectancy chart anticipates that the average person at agte 70.5 will live another 27.4 years. “So if you have $326,000 in your TSP account and you reach age 70, your RMD would be just over $11,800.” That’s money you would have to withdraw and pay taxes on. You don’t get to spend it or give it away. It is your money less the taxes you will pay on it. More information, in greater detail, has appeared previously in articles in TSP Safety Net and FedSmith.

If you have a Roth balance in your TSP, or a Roth IRA, the rules are different. And complicated.

So how much will you be required to take each year once you hit the big 7-0? And you rollover the RMD? Should you take the payments all in one lump sum, or in monthly installments. Short answer, it depends. So how can you find out what’s required of you, and what’s best for you?

Listen to today’s Your Turn radio show. The show runs from 10 a.m. to 11 a.m. EDT. John Grobe will be the guest and he’ll talk about the sometimes mysterious, frustrating world of the RMD. And other features of the TSP and why it’s an important part in your retirement plan. Listen if you can and remember all our Your Turn shows are archived on Federal News Radio so you can listen to them — and tell a friend to listen too — at your convenience. So listen today. It won’t be as exciting as those debates. But as opposed to the debates, you could pick up lots more useful information that is more practical and also happens to be true.

Don’t miss an episode of Your Turn with Mike Causey. Subscribe on iTunes.

Nearly Useless Factoid

By Michael O’Connell

Immediately before she begins her adventure through the looking-glass, Alice is playing indoors with the kittens of her pet cat, Dinah.

Source: Wikipedia

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